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Types of Income

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Income is money received from wages, salary or commission in exchange for the performance of services. While there are many ways of getting income, they are usually categorized into three types; Active, passive and portfolio income. Financial and government institutions also recognize these types of income.

These are the differences in the three types of income:

Active income
Income received from performing a service or a job. Usually, these individuals receive the same monthly wage and know when it is going to be received, allowing them to plan accordingly. Active income includes wages, salaries, commissions, tips, and income from a businesses.

Passive income
Income that requires minimal to no effort by the recipient to maintain it. Proponents of earning passive income tend to be boosters of a work-from-home or be-your-own-boss lifestyle. Examples of passive income include rental income and any business activities in which the earner does not materially participate.

Portfolio income
Income from investments, interest, dividends, and capital gains. It can also be royalties received from property held for investment. Portfolio income does not come from passive investments and is not earned through regular business activity.